Edited version of private advice

Authorisation Number: 1052001703891

Date of advice: 1 July 2022

Ruling

Subject: Assessable income - ordinary income

Question

Can the income generated from the investments in the Share Investment Account be assessable to both Taxpayer 1 and Taxpayer 2 in proportion to their beneficial ownership of the account?

Answer

Yes.

This ruling applies for the following period:

Income year ended 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

1.            Taxpayer 1 and Taxpayer 2 are a married couple.

2.            In 20XX, Taxpayer 1 and Taxpayer 2 requested to jointly open a Share Investment Account. Due to an error on the part of the bank, they were incorrectly told they could not open a Share Investment Account jointly.

3.            During the 20XX income year, Taxpayer 1 opened a Share Investment Account in their name only.

4.            All amounts contributed into the Share Investment Account since the date it was opened were from a linked bank account that is held jointly by Taxpayer 1 and Taxpayer 2.

5.            Decisions about the Share Investment Account were controlled by both Taxpayer 1 and Taxpayer 2.

6.            In the 20XX income year, a capital gain of $XX XXX was derived from the investments in the Share Investment Account.

7.            The income derived from the Share Investment Account (both capital gains and dividends) was reserved in the account for future transactions.

8.            During the 20XX income year, Taxpayer 2 was added to the Share Investment Account, so that it became a joint account.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 6-5

Income Tax Assessment Act 1997 subsection 6-5(2)

Income Tax Assessment Act 1997 section 6-10

Income Tax Assessment Act 1997 subsection 6-10(4)

Reasons for decision

Summary

Having considered your circumstances and the relevant factors, we accept the beneficial owners of the Share

Investment Account were different to the legal owner during the relevant period. Both Taxpayer 1 and Taxpayer 2 were beneficial owners of the Share Investment Account and held proportionate ownership interests in the investments in the Share Investment Account.

Detailed reasoning

Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that your assessable income includes income according to ordinary concepts, which is called ordinary income. Dividends paid by a company to a shareholder constitutes ordinary income. Subsection 6-5(2) of the ITAA 1997 provides that if you are an Australian resident, your assessable income includes the ordinary income you derived directly or indirectly from all sources, whether in or out of Australia during the year.

Section 6-10 of the ITAA 1997 provides that your assessable income also includes statutory income, an amount included in assessable income by a statutory provision. Any capital gain realised upon the disposal of shares constitutes statutory income. Subsection 6-10(4) of the ITAA 1997 provides that if you are an Australian resident, your assessable income includes your statutory income from all sources, whether in or out of Australia.

You must declare income you earn from investments in your tax return. If you hold assets jointly with another person, it is assumed that income of the asset is divided equally. That is unless you hold the asset in unequal proportions.

Beneficial ownership

The concept of beneficial ownership is explained in Taxation Determination TD 2017/11[1]. A beneficial owner is the person or entity who is beneficially entitled to the income and proceeds from an asset. Beneficial ownership can be different to legal ownership.

There is a general presumption that the holders of a joint bank account have joint beneficial ownership of the moneys in equal shares. That presumption is rebuttable by evidence to the contrary.TD 2017/11 states that evidence that is relevant to determine who has beneficial ownership of money in a joint account, or in what proportion the interest should be apportioned, includes evidence related to:

•         who contributed to the account

•         in what proportion contributions were made

•         the nature of contributions to the account

•         who made withdrawals from the account

•         who used the money and any accrued interest in the account as their own property, and

•         whether money is being held on trust for other persons.

Application to your circumstances

In your case, the Share Investment Account was opened in the sole name of Taxpayer 1 in the 20XX income year. This indicates Taxpayer 1 was the sole owner of the account.

However, we consider evidence in support of Taxpayer 2's beneficial ownership. From commencement, funds were contributed into the account from a bank account that is jointly held by Taxpayer 1 and Taxpayer 2.

Due to the presumption that holders of a joint bank account have joint beneficial ownership of the moneys in equal shares, this means that we presume that Taxpayer 1 and Taxpayer 2 contributed equally to the Share Investment Account.

Both Taxpayers controlled decisions regarding the Share Investment Account.

The income generated from the investments in the Share Investment Account was reserved in the share investment account for future transactions.

As of the 20XX income year, Taxpayer 2 has been added to the Share Investment Account, so it is now in both names.

Therefore, based on the evidence that was provided, the Commissioner is satisfied Taxpayer 1 and Taxpayer 2 both beneficially owned the investments in the Share Investment Account during the relevant period. Both parties can declare the income generated from the investment in the Share Investment Account in the 20XX income year in their respective income tax returns in proportion to their beneficial ownership.

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